Istanbul Journal of Economics
Risk Sermayesinin Yüksek Maliyeti ve Startuplar’ın İzlemesi Gereken Yatırım StratejisiMustafa Şeref Akın
Bu çalışmada risk sermayesi yatırımcılarının beklentilerini karşılamaları için almaları gereken hisse oranlarının matematiksel açılımı gösterilmektedir. Başlangıç safhası atlatıldıktan sonra, sermaye ihtiyacını karşılamada girişimcinin etrafındaki tanıdıkları yetersiz kalmaktadır. Bu nedenle, startup kurucuları öz kaynaklarının bir kısmını yatırım getirisi bekleyen diğer yatırımcılara satarlar. Startuplar’ın büyümeye geçme aşamasında risk sermayedarlarının desteği bu anlamda kritiktir. Buradaki en önemli açmaz ne kadar yatırıma ne kadar hisse oranı verileceği yönündedir. Risk sermayesinin organizasyon yapısı ve startuplar’daki başarı oranının düşük olması sebebiyle, maliyeti yüksek bir sermayedir. Yatırımcıların beklenti oranları genel piyasa beklentilerinin çok üstünde değildir. Risk sermayesini pahalı yapan unsurlar 5-10 yıl arası değişen uzun bekleme dönemi ve startup’ın başarılı olma ihtimalinin %10-20 arası değişmesidir. Bundan dolayı indirgeme oranları %50’lerin çok üstüne çıkmaktadır. Genellikle startup girişimcisi çok az sermaye karşılığında çok fazla hisse vermiş gibi bir hayal kırıklığı yaşamaktadır. Bu az sermayenin arkasındakinin risk sermayesini göstererek bu oranların bir pazarlık konusu veya bir sömürüden çok sektörün kurgusunun neticesi olduğunun anlaşılmasıdır. Bu şartlarda, startup kurucularının izleyebilecekleri en doğru strateji risk sermayedarlarıyla sıkı pazarlık etmek yerine gerektiği kadar finansman sağlamalarıdır.
High Cost of Venture Capital and Investment Strategy Startups Should FollowMustafa Şeref Akın
In this article, the mathematical expansion of the share that the venture capital investors should receive to meet their expectations is shown. After the initial phase has been overcome, the entrepreneurs’ acquaintances around them are insufficient in meeting the capital requirement. For this reason, founders sell some of their resources to other investors who expect a return on investment. In this sense, the support of venture capitalists is critical during the growth phase of the startup. The most crucial dilemma here is how much financing and how many shares will be given. Due to the organizational structure of venture capital and the low success rate in start-ups, it is a costly capital. Expectation rates of investors are not much above the general market ones. The factors that make venture capital so costly are the long waiting period of 5-10 years, and the chances of start-up success being between 10-20%. As a result, the discount rates are well above 50%. Entrepreneurs are disappointed when they give too many shares for little capital. Under these circumstances, the most accurate strategy a start-up can follow is to provide as much financing as needed rather than to negotiate tightly with venture capitalists.
A startup starts with the opportunity of potential economic gain. It must have supportive resources (financing, management) to take advantage of the opportunity in a competitive and uncertain environment. Bank loans require regular cash flows, and therefore, startups cannot access debt financing. Banks also demand mortgages in return for credit. In the initial funding, the entrepreneur, himself, his friends and relatives play an essential role. After the initial phase, the entrepreneur’s acquaintances around him are insufficient in meeting the capital requirement. For this reason, startup founders sell some of their resources to other investors who expect a return on investment. The most crucial dilemma here is in terms of how much investment will be given for how much share. Does this have a methodology? How does it handle the math? What are the strategies that startup founders should follow?
Usually, the startup entrepreneur is disappointed if he has given too many shares in exchange for very little capital. Sometimes they reject the offer. In this article, the organization and financial structures of venture capital are covered. It is shown that these calculations are the result of the sector’s foundation rather than a bargaining issue or exploitation.
Due to the high uncertainty for both parties, it is difficult to determine the true value of newly established startups. Often, the younger the startup, the more historical data is missing, and the higher are the uncertainties that affect future performance which make it difficult to appreciate the company.
Venture capital is the capital of an entrepreneurial group from other individuals and institutions. Risk capital entrepreneurs are called limited partners, as they only provide money. Limited partners are pension funds, endowments, companies, and wealthy people.
General partners are those working in venture capital firms. They make investment decisions and use capital from limited partners or their own resources.
The contract between partners is usually for ten years. This period can be divided into three parts. The new investment is made in the first period. In the second period, there are some new investments or additional investments to the existing investments, and in the third period, exists are realized. On average, 10 to 15 investments are made. Many of them fail.
Venture capital is an expensive financial instrument. The discount rate used by risk capitalists is much higher than the standard project evaluation discount rates. In particular, the effect of this reduction rate is observed in the high shareholding demanded against investment.
There are two main factors behind the discount rate: the setup of venture capital firms and the risk of ventures. Venture capital uses other people’s money for a long time. Limited partners are waiting for a return by adding to this waiting period.
The industry average is that one or two out of 10 investments are successful. Thus, the success rate (P) varies between 10% and 20%.
On the left side of Equation 1, there are capital (cash inflow), expectation returns (r) and time (T) of the fund. On the right side, is shown the probability of the startup firm to be successful and the income to be earned (cash out).
Cash Int * (1 + r) ^ T [Expected return of limited partners] = P × Cash Out [Expected result] (1)
There is a cash-to-cash (c-c) ratio when the amounts of cash are placed on the left side of the equation and the discount rates on the right side (equation 2).
Cash Out / Cash In = = (1 + r) ^ T / p (2)
The ratio of cash outflow (earnings) to cash inflow (cost) is 1 plus the time over return is divided by the probability of success. It also shows how much cash should be issued against each deposit.
As an example, there should be a cash-to-cash recycling rate based on investors’ expectations and success.
If the return expectation rate of investors is (r) = 0,1, 1 year is expected (t), the probability of success is 0,1 (p), it is necessary to withdraw cash from the sale of the starting firm of 11 TL against the cash inflow of 1 TL. For example, if two years is expected (t), 12,1 TL is required. If a 5-year exit strategy is foreseen, a cash outflow of 16,1 TL is required against the 1 TL set. The main reason for being extremely high, such as 11, 12, 16 times, is due to the low probability of success (P). If the success rate (P) is increased by 20%, the cash to cash rates required in the same example are reduced to 5,5, 6, and 8 times, respectively.
In this case, the area that can be in the price negotiation with the fund, which must meet the expectations of the investors, is narrow. The venture capital fund is not an exit. The startup founders should ask only a sufficient amount of capital.